Target cost for construction
Target costs are generally associated with cost-reimbursable contracts. They introduce a mechanism enabling the contractor, and sometimes the consultant team, to share in the benefits of cost savings, but also to bear some of the client's cost when there are cost overruns. Contracting the contractor and the consultant team on a target cost basis can be an effective way of ensuring good collaboration.
The target cost is set early in the project, and then cost savings or overruns are shared based on an agreed formula. The aim is to provide a financial incentive encouraging cost control, rather than to penalise. Bonus and penalty payments are usually capped to prevent over-zealous or adversarial behaviour.
Target costs might be set for the overall project, or for specific elements of the works. Agreeing the target cost requires that the client has sufficient knowledge and experience to be able to accurately estimate the likely cost of the works and to negotiate effectively with the contractor and sometimes the consultant team.
Examples of target cost contracts include the New Engineering Contract (NEC) Engineering and Construction Contracts Option C: Target contract with activity schedule and Option D: Target contract with bill of quantities.
NB: According to NRM2: Detailed measurement for building works, in the context of bills of quantities, the term ‘cost target' means; '...the total expenditure for an element or
work package.'
[edit] Related articles on Designing Buildings
- Bill of quantities.
- Construction contract.
- Contract condition.
- Contract sum.
- Cost overruns.
- Cost-reimbursable contract.
- Disallowed cost.
- Fast-track construction.
- Fixed price contract.
- Force account work.
- Guaranteed maximum price.
- Lump sum contract - pros and cons.
- New Engineering Contract.
- Open-book accounting.
- Procurement route.
- Target contract.
[edit] External references
Featured articles and news
Quality Planning for Micro and Small to Medium Sized Enterprises
A CIOB Academy Technical Information sheet.
A briefing on fall protection systems for designers
A legal requirement and an ethical must.
CIOB Ireland launches manifesto for 2024 General Election
A vision for a sustainable, high-quality built environment that benefits all members of society.
Local leaders gain new powers to support local high streets
High Street Rental Auctions to be introduced from December.
Infrastructure sector posts second gain for October
With a boost for housebuilder and commercial developer contract awards.
Sustainable construction design teams survey
Shaping the Future of Sustainable Design: Your Voice Matters.
COP29; impacts of construction and updates
Amid criticism, open letters and calls for reform.
The properties of conservation rooflights
Things to consider when choosing the right product.
Adapting to meet changing needs.
London Build: A festival of construction
Co-located with the London Build Fire & Security Expo.
Tasked with locating groups of 10,000 homes with opportunity.
Delivering radical reform in the UK energy market
What are the benefits, barriers and underlying principles.
Information Management Initiative IMI
Building sector-transforming capabilities in emerging technologies.
Recent study of UK households reveals chilling home truths
Poor insulation, EPC knowledge and lack of understanding as to what retrofit might offer.
Embodied Carbon in the Built Environment
Overview, regulations, detail calculations and much more.
Why the construction sector must embrace workplace mental health support
Let’s talk; more importantly now, than ever.
Ensuring the trustworthiness of AI systems
A key growth area, including impacts for construction.